China Evergrande troubles seep into high yield market — Mid-Day Commentary

The US high yield market weakened this morning, as escalating fears that China property developer Evergrande could be on the brink of a default gave way to a broad selloff in equities.

The S&P 500 shrank 2.12% or 94.17 points to 4338.82 by intraday, while the Nasdaq was 2.63% or 396.18 points lower at 14,647.79. Amid the declines, the CBOE Volatility Index (VIX) shot up more than 20% today from Friday’s (17 September) close, reflecting the heightened volatility and increased investor angst in the market.

Of note, recent issuers Springs Window Fashions and Coinbase softened in response to the market volatility.

After pricing at par on Friday, trades on Springs Window’s USD 625m 6.5% senior unsecured notes due 2029 dropped to 97.25/98 today, said two sources.

Also issued at par last week, Coinbase’s USD 1bn 3.375% senior unsecured notes due 2028 traded today at 96.5 to yield 3.95%, while its USD 1bn 3.625% senior unsecured notes due 2031 traded today at 96.5 to yield 4.053%, according to MarketAxess.

Companies exposed to Asian markets such as NucorFreeport-McMoRan and Albemarle also tumbled today.

Steel company Nucor’s shares swooned 8% to USD 96.49 per share and a market cap of USD 28.336bn from Friday’s close.

And copper and gold mining company Freeport-McMoRan’s shares traded today at USD 30.90 and a market cap of USD 45.407bn, down 6.4% from Friday’s close. Freeport’s USD 800m 5.4% senior unsecured notes due 2034, meanwhile edged lower to 122.5 with a 3.219% yield, from trades at 123.5 to yield 3.135% on 17 September, according to MarketAxess.

Chemicals company Albemarle’s shares traded today at USD 213.95 and a market cap of USD 25.068bn, down 5.69% from Friday’s close.

Over the last few weeks, investors have kept a close eye on Evergrande, which has more than USD 300bn in debt, to see if the company buckles under cash flow pressures. The property developer faces interest payments on certain bank loans today and a bond payment later this week, on Thursday (23 September).

Investors fear that if Evergrande defaults, the negative ripple effect could spread to the overall Chinese economy and thereafter the worldwide economy. Many compare the situation to the bankruptcy of Lehman Brothers due to the sheer size of the company’s debt and its potential impact on the global economy.

If China bails out the company, the trickle-down effect could be minimized, three buysiders said.

Evergrande’s shares fell 10.24% today to HKD 2.28 and a market cap of HKD 30.1bn, compared to HKD 2.54 at close on Friday (17 September). The latest prices mark a drastic 64% nosedive from HKD 6.33 per share recorded in early August. The issuer’s USD 1.345bn 7.5% senior unsecured notes due 2023 traded today at 24.5, compared to trades at 28.5 on 16 September and 31.5 on 10 September, according to MarketAxess.

Fellow Chinese developer Sinic plummeted 87% in response today to HKD 0.50 per share and a market cap of HKD 1.785bn, versus Friday’s close.

Guangzhou R&F Properties, meanwhile, fell to HKD 4.29 per share and a market cap of HKD 16.098bn today, down 7.34% from Friday’s close.

2021 Debtwire

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